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Chapter 6: 3E_1 (page 307)

Good accounting systems help with the management and control of cash and cash equivalents.

1. Define and contrast the terms liquid asset and cash equivalent.

Short Answer

Expert verified

Answer

A fluid resource is a resource that can promptly change over into cash, with least or no misfortune in esteem. Cash reciprocals are momentary responsibilities with temporarily available cash briefly accessible money.

Step by step solution

01

Step-by-Step SolutionStep 1: Introduction of Accounting System

An accounting system is a bunch of accounting processes with incorporated methods and controls. An accounting system plans to record transactions, sum up those exchanges into a totaled structure, and make reports that chiefs can utilize to screen, break down, and further develop activities.

02

Effect of transaction

A liquid asset refers to an asset that can be promptly converted over into one more sort of asset or be utilized to fulfil an obligation.

A cash equivalent is a short-term investment that can be promptly changed over to a known amount of cash and is sufficiently close to its maturity date. Its reasonable worth is somewhat insensitive toward interest rate changes.

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Most popular questions from this chapter

The following annual account balances are taken from Armour Sports at December 31.

2017 2016

Accounts receivable . . . . . . . . . . . \( 100,000 \) 85,000

Net sales . . . . . . . . . . . . . . . . . . . . 2,500,000 2,000,000

What is the change in the number of days’ sales uncollected between years 2016 and 2017? (Round the number of days to one decimal.) According to this analysis, is the company’s collection of receivables improving? Explain.

Internal control procedures are important in every business, but at what stage in the development of a business do they become especially critical?

Nakashima Gallery had the following petty cash transactions in February of the current year.

Feb. 2 Wrote a \(400 check, cashed it, and gave the proceeds and the petty cashbox to Chloe Addison, the petty cashier.

5 Purchased paper for the copier for \)14.15 that is immediately used.

9 Paid \(32.50 COD shipping charges on merchandise purchased for resale, terms FOB shipping point. Nakashima uses the perpetual system to account for merchandise inventory.

12 Paid \)7.95 postage to deliver a contract to a client.

14 Reimbursed Adina Sharon, the manager, \(68 for mileage on her car.

20 Purchased stationery for \)67.77 that is immediately used.

23 Paid a courier \(20 to deliver merchandise sold to a customer, terms FOB destination.

25 Paid \)13.10 COD shipping charges on merchandise purchased for resale, terms FOB shipping point.

27 Paid \(54 for postage expenses.

28 The fund had \)120.42 remaining in the petty cashbox. Sorted the petty cash receipts by accounts affected and exchanged them for a check to reimburse the fund for expenditures.

28 The petty cash fund amount is increased by \(100 to a total of \)500.

Required

1. Prepare the journal entry to establish the petty cash fund.

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

4. Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

Match each document in a voucher system in column one with its description in column two.

Document

1. Purchase requisition

2. Purchase order

3. Invoice

4. Receiving report

5. Invoice approval

6. Voucher

Description

A. An itemized statement of goods prepared by the vendor listing the customer’s name, items sold, sales prices, and terms of sale.

B. An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.

C. A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.

D. A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.

E. A document used by department managers to inform the purchasing department to place an order with a vendor.

F. A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.
See all solutions

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